Stockholders’ Equity

12 Months Ended

Dec. 31, 2022

Equity [Abstract]

Stockholders’ Equity

11. Stockholders’ Equity

As of December 31, 2022, the Company’s authorized capital stock consisted of 200,000,000 shares of common stock, par value $0.0001 per share, and 10,000,000 shares of preferred stock, par value $0.0001 per share.

The Company had 34,414,149 and 29,455,668 shares of common stock outstanding as of December 31, 2022 and 2021, respectively.

Registered Direct Offering and related warrants

On February 3, 2021, the Company entered into a securities purchase agreement (the Securities Purchase Agreement) with two institutional investors (the Purchasers), relating to the issuance and sale (the Offering) of an aggregate of 4,285,710 shares of common stock and warrants to purchase 1,285,713 shares of common stock (the Warrants) for aggregate gross proceeds to the Company from this Offering of approximately $30.0 million, excluding any proceeds the Company may receive upon exercise of the Warrants. No underwriter or placement agent participated in the Offering. The proceeds, net of related issuance costs, were $29.9 million.

The Warrants are exercisable immediately upon issuance at an initial exercise price of $14.00 per share and are exercisable on a cashless basis. The Warrants expire on the earlier of (i) the fifth anniversary of issuance or (ii) the 15th calendar date following the date on which the Company closes upon an equity financing that results in not less than $25 million of gross proceeds to the Company at a price per share of common stock equal to or greater than $25.00, at which time, all remaining Warrants will automatically be exercised on a cashless basis. The exercise price and the number of shares of common stock purchasable upon the exercise of the Warrants are subject to adjustment upon the occurrence of specific events, including stock dividends, stock splits, reclassifications and combinations of the Company’s common stock. All of the warrants are recorded within equity in accordance with authoritative accounting guidance.

Pursuant to the terms of the Securities Purchase Agreement, the Company appointed Dr. Yu (Katherine) Xu, Ph. D. to the Board as a nominee of the Purchasers.

Purchase Agreement

On March 27, 2020, the Company entered into a purchase agreement (Purchase Agreement), with Lincoln Park, which provides that, upon the terms and subject to the conditions and limitations set forth therein, the Company may sell to Lincoln Park up to $15.0 million of shares of its common stock from time to time over the 36-month term of the Purchase Agreement. Upon execution of the Purchase Agreement, the Company issued 65,374 shares of its common stock to Lincoln Park as commitment shares in accordance with the closing conditions contained within the Purchase Agreement. The commitment shares were valued using the closing price of the Company’s common stock on the effective date of the Purchase Agreement resulting in a fair market value of approximately $0.2 million. The fair market value of the commitment shares as well as other issuance costs associated with the Purchase Agreement totaled $0.4 million. These issuance costs were classified as prepaid expenses and other current assets in the accompanying consolidated balance sheet as of December 31, 2021. There have been no sales of the Company’s stock under this Purchase Agreement as of December 31, 2022 and through the date of the filing of this Annual Report on Form 10-K. The Purchase Agreement expires on May 1, 2023. Since the Company believes it is unlikely to sell any shares to Lincoln Park prior to the Purchase Agreement expiring, the capitalized issuance costs were written off as of December 31, 2022 to general and administrative expense.

2018 Equity Incentive Plan

In October 2018, the Company adopted the 2018 Equity Incentive Plan (the 2018 Plan) which replaced the Company’s legacy 2017 Equity Incentive Plan (the 2017 Plan). The 2018 Plan provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, performance cash awards and other forms of stock awards. As of December 31, 2022, the 2018 Plan had a maximum of 784,331 total shares available for issuance. The number of shares of common stock reserved for issuance under the 2018 Plan will automatically increase on January 1 of each calendar year through January 1, 2028, in an amount equal to 5.0% of the total number of shares of the Company’s capital stock outstanding on the last day of the calendar month before the date of each automatic increase, or a lesser number of shares determined by the Board.

Options granted under the 2018 Plan are exercisable at various dates as determined upon grant and will expire no more than ten years from their date of grant. The exercise price of each option shall be determined by the Board based on the estimated fair value of the Company’s stock on the date of the option grant. The exercise price shall not be less than 100% of the fair market value of the Company’s common stock at the time the option is granted. Most option grants generally vest 25% on the first anniversary of the original vesting commencement date, with the balance vesting monthly over the remaining three years.

Stock Options

The following summarizes stock option activity for the year ended December 31, 2022:

	Outstanding Options			Weighted- Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands) (a)
Balances as of December 31, 2021		3,947,025		$	4.58
Granted		2,169,800		$	3.63
Exercised		-		$	-
Forfeitures and cancellations		(1,014,324	)	$	4.90
Balances as of December 31, 2022		5,102,501		$	4.11		7.71	$	-
Options exercisable as of December 31, 2022		2,483,222		$	4.23		6.75	$	-

(a)Aggregate intrinsic value in this table was calculated as the positive difference, if any, between the closing price per share of the Company’s common stock on December 31, 2022 of $1.06 and the price of the underlying options.

The aggregate intrinsic value of stock options exercised was none and $0.4 million for the years ended December 31, 2022 and 2021, respectively. Cash received from stock options exercised was none and $0.9 million for the years ended December 31, 2022 and 2021, respectively.

The fair value of stock options that vested in the years ended December 31, 2022 and 2021 was $4.5 million and $3.0 million, respectively. The weighted-average grant-date fair value of options granted was $2.49 and $3.94 for the years ended December 31, 2022 and 2021, respectively.

As of December 31, 2022, unrecognized compensation expense related to unvested stock options was $6.7 million and is expected to be recognized over a weighted-average period of 2.6 years.

2018 Employee Stock Purchase Plan

In October 2018, the Company adopted the 2018 Equity Stock Purchase Plan (ESPP) whereby eligible employees may elect to withhold up to 15% of their earnings to purchase shares of the Company’s common stock at a price per share equal to the lower of (i) 85% of the fair market value of a share of the Company’s common stock on the first date of an offering or (ii) 85% of the fair market value of a share of the Company’s common stock on the date of the purchase right (purchase right). Initially, 343,275 shares of the Company’s common stock were approved for issuance under the ESPP pursuant to purchase rights granted to the Company’s employees or to employees of any of the Company’s designated affiliates. The number of shares of the Company’s common stock reserved for issuance will automatically increase on January 1 of each calendar year through January 1, 2028, by the lesser of (1) 1.0% of the total number of shares of the Company’s common stock outstanding on the last day of the calendar month before the date of the automatic increase, and (2) 343,275 shares; provided that before the date of any such increase, the Board may determine that such increase will be less than the amount set forth in clauses (1) and (2).

As of December 31, 2022, the Company had issued 307,417 shares of common stock under the ESPP, 138,251 of which were issued during the year ended December 31, 2022. The Company had 925,963 shares available for future issuance under the ESPP as of December 31, 2022.

Liability for Early Exercise of Restricted Stock Options

All stock option grants under the 2017 Plan provide for exercise of the stock option prior to vesting. Shares of common stock issued upon exercise of unvested options are subject to repurchase by the Company at the respective original exercise price until vested. Consideration received for the exercise of unvested stock options is recorded as a liability and reclassified into equity as the related award vests.

As of December 31, 2022, there were no unvested shares issued under early exercise provisions subject to repurchase by the Company. As of December 31, 2021, there were 43,135 unvested shares issued under early exercise provisions that were subject to repurchase by the Company. The balance sheet reflects an unvested stock liability of none and $53,000 as of December 31, 2022 and 2021, respectively. As of December 31, 2021, the unvested stock liability was considered short-term and was classified as accrued expenses on the accompanying consolidated balance sheet.

Stock-based Compensation Expense

Total non-cash stock-based compensation expense for all stock awards and purchase rights, net of forfeitures recognized as they occur, that was recognized in the consolidated statement of operations is as follows (in thousands):

	Year Ended December 31,
	2022		2021
Research and development	$	1,799	$	1,976
General and administrative		3,042		2,434
Total	$	4,841	$	4,410

The weighted-average assumptions used in the Black-Scholes option pricing model to determine the fair value of the employee and nonemployee stock option grants were as follows:

	Year Ended December 31,
	2022	2021
Risk-free interest rate	1.93%	0.68%
Expected volatility	81.60%	88.55%
Expected term (in years)	5.84	6.01
Expected dividend yield	0%	0%

Risk-free interest rate. The risk-free rate assumption is based on the U.S. Treasury instruments, the terms of which were consistent with the expected term of the Company’s stock options.

Expected volatility. Due to the Company’s limited operating history and lack of company-specific historical or implied volatility as a private company, the expected volatility assumption was determined by examining the historical volatilities of a group of industry peers whose share prices are publicly available.

Expected term. The expected term of stock options represents the weighted-average period the stock options are expected to be outstanding. The Company uses the simplified method for estimating the expected term as provided by the SEC. The simplified method calculates the expected term as the average of the time-to-vesting and the contractual life of the options.

Expected dividend yield. The expected dividend assumption is based on the Company’s history and expectation of dividend payouts. The Company has not paid and does not intend to pay dividends.

Forfeitures. The Company reduces stock-based compensation expense for actual forfeitures during the period.

Common Stock Reserved for Future Issuance

Common stock reserved for future issuance consists of the following as of December 31, 2022 and 2021:

	December 31,
	2022		2021
Stock options issued and outstanding		5,102,501		3,947,025
Warrants for common stock		1,366,141		1,366,141
Awards available under the 2018 Equity Incentive Plan		784,331		467,024
Employee stock purchase plan		925,963		769,658
Total		8,178,936		6,549,848